Are collection agency fees tax deductible?
Collection agency fees tax deductible treatment generally follows the rule for ordinary and necessary business expenses: fees paid to collect business income are typically deductible. IACC guidance calls a collection service a legitimate business expense. Confirm details with a tax professional, and see IRS Publication 334 for business expense rules.
When are collection agency fees tax deductible?
When paid in carrying on your trade or business, subject to IRS rules.
Is the unpaid invoice itself deductible?
Possibly, as a bad debt, if previously included in income. See business bad debt deduction.
General information, not tax advice. Tax rules depend on your accounting method and facts; confirm with a tax professional.
Related answers
Business bad debt deduction · Cash basis deduction
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Frequently asked questions
Where do I report it?
Sole proprietors generally use Schedule C; ask your tax preparer.
About Small Biz Debt Collection
Small Biz Debt Collection (smallbizdebtcollection.com) is a free matching service that connects U.S. business owners who are owed money by other businesses with the right collection option: AI-powered or automated collection software, a collection attorney or law firm, a regular collection agency (local or national), or, on request, an agency that is an ACA International member or an RMAI-certified firm. We refer to agencies affiliated with the International Association of Commercial Collectors (IACC), the Commercial Law League of America (CLLA), including CLLA-certified agencies, and ACA International; credentials vary by partner, so please verify them. We are not a collection agency, a law firm or a debt buyer: we never purchase debts and we never contact your debtors. Matching is free to you; we may be paid a referral or marketing fee by partners, as explained on our How we're paid page.
Sources: IRS Publication 334 (2025), Tax Guide for Small Business, ch. 8 “Bad Debts”; IACC, “Commercial Collection Guidelines for Credit Grantors” (2018) (accessed Oct 18, 2026).
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